What is the Twin Peaks System?
Jurisdictions like the United Kingdom, the Netherlands, South Africa and Australia have substantially reformed their banking and financial sector regulators by adopting a "twin peaks" regulatory structure.
Under the Twin Peaks System, two financial regulating entities are established. One is supposed to maintain the financial system's stability – The prudential regulator; the other is responsible for market conduct and consumer protection.
This Financial Services System has been developed to address weaknesses in the other models commonly used to regulate banks and the financial services sector. For example, before adopting it, South Africa used the sectoral model – which controlled banks separately from other financial firms like advisories or asset managers.
Twin Peaks ensures that all financial firms are covered under the prudential peak, while the other regulator (The remaining peak) monitors good conduct irrespective of the type of entity or the type of product or service offered.
Objectives of the FSR Act
The Act's objective is to split the regulating authorities of the financial services sector into two centres. The first centre will be a Prudential Authority (PA), which will fall within the Reserve Bank and supervise financial institutions' safety and soundness. It will be headed by the Governor of the Reserve Bank and overseen by a committee that includes the Governor.
The second centre will be the Financial Sector Conduct Authority (FSCA), which will replace the FSB and supervise how financial institutions conduct business and treat their customers. The FSCA will be a standalone institution, managed by an executive committee that includes a commissioner and deputy commissioners, with independent governance committees for remuneration, audit and risk.
The Banking Association of South Africa (BASA) is pleased that the Act will align South African financial sector legislation with global best practices.
"This sophisticated piece of legislation aligns South Africa with — and in some instances beyond — prudential and market conduct reforms worldwide. Moreover, the new law will add to South Africa's already tough financial market and banking regulatory framework," the BASA said.
Law firm Cliffe Dekker Hofmeyr stated that the new regulatory framework aims to address the current regulatory framework's fragmented nature. It will ultimately contribute to broader economic strategies for increased job creation and inclusive growth by:
Protecting from the substantial costs associated with systemic risk,
Improving access to good quality financial products and services, and
Supporting the efficient channelling of savings into investment.
Rosemary Lightbody, Senior Policy Advisor at the Association for Savings and Investment South Africa (ASISA), says ASISA and its members fully support strengthening the financial sector by introducing appropriate structures for more efficient regulation, supervision and supervision and oversight.
Compli-Serve SA managing director Richard Rattue says the Twin Peaks model's whole point is to create a more robust financial system and strengthen oversight of market conduct. "It is a more direct approach to consumer protection and market conduct across financial services," he said.
The President of South Africa recently signed the Financial Sector Regulation (FSR) Act into law.
This Act becomes the backbone to the Twin Peaks regulatory system.